Business Asia Issue No.

1, Spring 2009

Sit down with

Jeremy Siegel
and find out his outlook on the Asian financial markets.

PLUS
WHY CHINA WILL
RECOVER FIRST

India:
Better or worse?

RESTAURANT REVIEW:
HANDCUFFS &
GOURMET
IN SINGAPORE

Is Asia the Next Place to Go?

 PHOTOGRAPH COURTESY OF JUSTIN LEOW
Business Asia
PRESIDENT Jeremy Vasquez
VICE PRESIDENT Ray Wong
CO-EDITOR-IN-CHIEF Alexandria Sun
FOR GENERAL INQUIRIES:
CO-EDITOR-IN-CHIEF Ivan Au
cornell.asia.business.forum
@gmail.com
CHIEF ADMINISTRATIVE OFFICER Hyohoon Lim
EXTERNAL COMMUNICATIONS OFFICER Seo Hyun Kim ADVERTISE WITH US:
EXTERNAL COMMUNICATIONS OFFICER Eugene Huang business.cabm@gmail.com
INTERNAL COMMUNICATIONS OFFICER Cheryl Sim
WANT TO WRITE FOR US OR
COPY EDITOR Wes Yiu WORK FOR US? CONTACT:
LAYOUT EDITOR Michael Hong cornell.asia.business.forum
@gmail.com
EDITORIAL Sara Liu Subject: “Recruiting”
Zoie Teng
LET US KNOW WHAT YOU THINK at
Nik Kumar http://businessasia.weebly.com!
Barbie Hsu SEE INSIDE BACK COVER FOR
Christy Ai MORE INFORMATION.

ADVERTISING MANAGER Hyun Jae Dhong

MARKETING MANAGER Pamela Hidajat
BUSINESS STAFF Tony Lee
Wytse Schukken
 Business Asia
4 | EDITOR’S LETTER
5 | BUSINESS OVERVIEW
by Hyohoon Lim
A brief overview of main events
affecting business in Asia and
economic indicators
INVESTING
12
| Asia Equity Focus: Where
are we heading in 2009?
by Zoie Teng
What you need to know about
investing in Asia’s equity markets
15
|Good News in Bad Econo-
my: the Philippine Economy
Remains Strong by Aaron
Vasquez, New York University
The sun shines on this island
economy
TECHNOLOGY
16 | Rise of the Digital Dragon
by Eugene Huang
Our technology correspondent
talks about Baidu, the Google
of China
REAL ESTATE
18
| Tale of Two Cities:
Shanghai and Hangzhou
Real Estate
by Barbie Hsu & Christy Ai
China’s real estate condition
summarized by two major cities
20
| The Subprime Mortgage
Crisis and the Real Estate
Market in China by Professor
Peng Liu, Cornell University
Why China will be the first to
recover from the subprime
mortgage crisis.
23
| Risks in China’s Real Estate
Market with Professor Peng
Liu, Cornell University
by Ivan Au & Jeremy Vasquez
Characteristics of China’s real
estate market that make it dif-
ferent from the rest
Issue No.1, Spring 2009
COVER FEATURE
6 | China, the United States, and the Financial Crisis by Sara Liu
How is the global economic crisis affecting China and Sino-US relations?
8
| Perspectives from Abroad: Hong Kong
by Felix Lau, Hong Kong University of Science and Technology
Views from abroad, where the crises have had different consequences
10
| India’s Future Amid the Present Financial Crises by Nik Kumar
The emerging economy of India shows promising growth and a
positive economic outlook
Shanghai, see p.19
INTERVIEWS
32
| Sitting Down with Professor
Jeremy Siegel, University of
Pennsylvania by Kellen Xu,
University of Pennsylvania
The prominent author of the
classic “Stocks for the Long
Run” discusses his view on
Asia’s economy and its future
34
| On Korea: Seo Young
SOURCE: CITY-PHOTO.ORG
Tae, Hyundai Oil Bank
by Seo Hyun Kim
What the globalizing world
means to South Korea
CAREERS
LIFESTYLE 35
| Postcard from the Edge
by Duncan Scott,Vice
25
| Mainland China: Home of 106
Billionaires and More Than 800
Million Poor by Christy Ai
President, V.F. Corporation
Things to keep in mind about
working in Asia
Discussing the widening gap be
tween rich and poor
36 | Internships Abroad:
Working in China
27
| Restaurant Review:
Doctor’s Orders by Wes Yiu
Eccentricity is taken to a whole
by David Hao, University of Toronto
Take a look at a summer intern’s
experience with an American pub-
new level in Singapore lisher in China
29
| Destination: Shikoku
by Joanne Ng, National
University of Singapore
37
| Hot Careers in China for Foreign
Graduates
by Alexandria Sun & Ray Wong
Experience the wonders of Shi- Two professors at Nanjing Uni-
koku, the smallest yet one of the versity discuss their thoughts
most beautiful islands in Japan on the economy and future for
students
 editors’ letter
WELCOME to the inaugural issue of Business Asia, the first undergraduate-
run magazine in the nation focused on the changing business landscape in
Asia. Our mission is to deliver an informative yet interesting magazine that
will keep you updated with current events. Through Business Asia, we hope
to establish a forum for a new generation of global leaders. From a small idea
back in Fall 2008 to the actual magazine today, we owe our success to a team
of 19 dedicated students at Cornell- without their many nights of hard work
and valuable opinions, this magazine would not have been possible. For this
issue, we are distributing the magazines to Cornell, the University of Penn-
sylvania, NYU, UCLA and Boston University. We hope to expanding interna-
tionally as we move on to our next issue, tentatively launching in November,
2009.

We may be publishing our inaugural issue at the peak of the global financial
crisis, but we believe that this is the best time for students to understand its
ripple effect in Asia, an increasingly important player in the global market. The
theme of this issue comes in the form of a riddle: “Is Asia the Next Place
to Go?” We provide you with insights from enthusiastic students, prominent
professors and experienced alumni around the globe to help you consider this
question. This issue first briefly overviews the main political and economic
events that have taken place in Asia in the past quarter. Then, our dear reader,
you will witness how the crisis has affected China, Hong Kong, and India re-
spectively. The subsequent discussion of the Philippine market and a detailed
analysis of why China’s real estate market is positioned to recover first will
bring a ray of hope and prove the contrary. The lifestyle section will then take
you to Singapore and Japan while exposing a social problem in China. We also
have gleaned valuable insights from two prominent professors on what they
think about the Asian economy’s past, present and future. To wrap things up,
PHOTOGRAPHS COURTESY OF JUSTIN LEOW

we have compiled insider knowledge and little-known secrets about career op-
portunities in Asia. As you read through these articles, we hope to shed light
on the question that lingers on many minds.

From top: Alexandria Sun, Ivan Au Finally, we value YOUR opinion. After you fill out the survey on our website,
http://businessasia.weebly.com/, you will automatically get a chance to win
50% off any Kaplan course or a coupon from Miyake Japanese Restaurant as
a sign of our appreciation.

Are you ready to tackle the big question?

Alexandria Sun
Ivan Au
CO-EDITOR-IN-CHIEFS
QUESTIONS? FEEDBACK? Email us at cornell.asia.business.forum@gmail.com

APRIL
China to Combine Steel Companies
In order to help steel companies facing liquidity
shortages, the State Council of China approved a
plan to combine steel companies.
Indonesia Vow for Anti-Corruption despite
Economic Difficulties
Indonesia’s famous politician and current law
maker Sarjan Taher was sentenced four and a half
years in prison after he was charged with receiving
bribes and swaying government policy in favor of
lobbyists.
JANUARY
Hilary Clinton Discusses Future US-China Eco-
nomic Relationship
The U.S. Secretary of State met with China’s Minister
of Foreign Affairs Yang Jiechi to discuss the future
of the U.S.-China relations.
Korean Exchange Rate Plummets Again
The Korean Won exchange rate to U.S. Dollar has
reached a record high of 1,500 won.
Aluminum Corp. of China to Invest in Rio Tinto
Aluminum Corporation of China, China’s largest
aluminum producer also known as Chinalco, an-
nounced an investment of $20 billion in debt-ridden
Rio Tinto Group.
FEBRUARY
Asian Countries to Create Their Own
Version of IMF
China, Japan, and South Korea discussed bringing
funds to a common foreign reserve pool that will
help Asian countries with liquidity shortages.
Southeast Asian Countries Sign Free-Trade
Agreement with Austrailia & New Zealand
In an effort to lower trade barriers and find a break-
through during the economic crisis, the Association
of South East Asian Nations signed a free trade pact
with Australia and New Zealand.
Business Overview
China’s Game Company Goes Public
ChangYou.com Ltd., Chinese online game
maker, gained $120 million after IPO on
NASDAQ.
ASEAN+3 Summit Cancelled After
Bangkok Protest
After Thai soldiers and Pro-Thaksin protes-
tors clashed, ASEAN+3 Summit finance
ministers’ meetings were cancelled.
Japan announces a record stimulus
package
Japan unveiled its latest economic stimulus
package containing a record Y15.4 trillion
($155 billion) in fresh spending and tax cuts
to tackle its worst recession since World War
II. Japan would issue more than 10 trillion
yen in new bonds to finance the package.
MARCH
China Rejects Coca-Cola’s Bid for Huiyuan Juice
Chinese government decided to reject Coca-Cola
Company’s largest bid to purchase China’s juice
maker Huiyuan. Both companies announced that
they “respected” the government’s decision.
China’s Stimulus Plan May Change the World
Economy
Chinese Premier Wen Jiabao announced that the
government will add a record amount of funds in
addition to the $586 billion stimulus package.
China’s Trade Figures May Show Signs of
Recovery
As China’s trade deficit declines, prime minister Wen
Jinbao is expecting “gradual recovery.”
Asian Stock Rally Continues
Asian stock markets extended rally for the fifth week
and boosted investors’ confidence, following the rally
on Wall Street.
BUSINESS ASIA • Spring 2009 • 5
 Cover Feature
China, the United States, and
the Global Financial Crisis
How is China affected by the global economic crisis, and how is the current financial crisis af-
fecting China’s relations with the United States?
THE ISSUE
A number of economists believe
China bears some responsibili-
ty in causing the financial crisis. For-
mer United States Treasury Secre-
tary Henry Paulson, in an interview
with the Financial Times, discussed
how the “super-abundant savings
from fast-growing emerging nations
such as China… at a time of low in-
flation and booming trade and capi-
tal flows put downward pressure on
yields and risk spreads everywhere.”
He says that this “laid the seeds of
a global credit bubble that extended
far beyond the U.S. sub-prime mort-
gage market and has now burst with
devastating consequences world-
wide.”
In addition, criticisms of
China manipulating its currency
cast a doubtful light on China’s role
in the current financial crisis. The
Economic Policy Institute (EPI), in
September 2006, released an article
calling for action against China’s
violation of currency manipulation
standards. “For the sake of stability
in the U.S. economy, the Chinese
economy, and the global economy,”
it states, “action must be taken
to unwind… the run-up in the
American trade and current account
deficits.” A run-up, the EPI claimed,
is spurred by the Yuan’s currency
peg against the dollar.
On December 10, 2008, the
6 • BUSINESS ASIA • Spring 2009
By Sara Liu, Cornell University
Treasury Department concluded in
its semi-annual report to Congress
that although “the gap between
the real exchange rate and its
equilibrium level remains wide and
the RMB remains substantially
undervalued,” the Treasury has had
not found any of United States’
major trading partners to have
manipulated the rate of exchange
“for purposes of preventing
effective balance of payments or
gaining unfair competitive advantage
in international trade.” However,
just over a month later, Timothy
Geithner, the current Secretary of
the Treasury, and former New York
Federal Reserve President, released
a statement that “President Mr.
Obama – backed by the conclusions
of a broad range of economists –
believes that China is manipulating
its currency.”
However, Wen Jiabao, the
Chinese premier, disagrees. He
places the blame for the financial
crisis squarely on the ensnared
countries. “I think the main reason
for this global financial crisis is
the imbalances of some of the
economies themselves. For a long
time they have had double [fiscal
and current account] deficits and
kept up high consumption based on
massive borrowing. It is completely
confounding right and wrong when
some countries who have been
overspending to blame those who
lend them money for their spending.”
Wen rejects accusations that China
is manipulating its currency, citing
that “the renminbi had appreciated
21 per cent since China adopted a
managed float of its currency in
2005.”
THE BACKGROUND
However, before a blame game
develops, China’s recent economic
developments should be analyzed
and a brief history of its reforms
reviewed. Many believe that China’s
entry with regards to capitalism be-
gan with its 1979 economic reforms.
Focused on advancing the Chinese
economy, the reforms aimed to de-
crease government planning and
direct control while increasing the
role of market mechanisms. By de-
centralizing the economy or more
specifically, economic policy-mak-
ing, enterprises were able to operate
and compete on free market prin-
ciples. Since then, China’s trade and
investment reforms initiated a surge
in foreign direct investment (FDI).
Many economists credit this impres-
sive FDI for much of China’s aver-
age 9+% annual GDP growth from
1978 to 2005.
Now, the focus is on China’s
trade relationship with the United
States. Since the late 1980’s, China
has run a bilateral trade surplus with
the United States. In 2005, these
surpluses grew large enough that the
United States’ bilateral trade deficit
with China exceeded $200 billion, or
over one-fourth of its total imbal-
ance. U.S. imports from China are
almost six times as large as US ex-
ports to China, implying that future
exports must grow six times faster
relative to import growth just to keep
the bilateral imbalance steady. As of
February 2009, China accounted for
almost half of the U.S. trade deficit.
Now, as the United States economy
braces for a recession, consequences
of China’s heavy reliance on its ex-
ports become clear.
THE EFFECT ON CHINA
Because of the global trad-
ing ties, many countries beyond the
United States have felt the pinch of
the American recession. In fact, in
late January of 2008, former Federal
Reserve Chairman Alan Greenspan
said, “some form of global reces-
sion is inevitable at some point.”
However, given China’s significant
trade surplus with the United States,
economists generally agree that Chi-
na will be one of the hardest hit.
Peking University professor
Michael Pettis worries that as the
U.S. import demand falls, “there’s a
real risk that the Chinese economy
will be overwhelmed” as “the U.S.
is so much larger than China, and
it is adjusting so rapidly.” Much of
China’s success in exports can be at-
tributed to its low-margin, low-tech-
nology business model. As such,
Chinese companies have gained a
reputation for producing products
lacking in quality, a reputation only
strengthened by the latest scandals
of poisoned milk and tainted toys.
With American business and
consumers pulling back on spending
on China’s exports, many Chinese
businesses are going bankrupt. For
instance, as a consequence of fall-
ing demand for its closing exports,
Xinji, which is located four hours
from Beijing, had closed most of its
factories by November 2007. Tens
of thousands of workers returned
to their villages, and most are now
jobless.
AS OF FEBRUARY
2009, CHINA
ACCOUNTED FOR
ALMOST HALF OF
THE U.S. TRADE
DEFICIT.
CHINA-U.S. RELATIONS
This financial crisis has also
affected the relationship between
China and the United States. As
recently as December of 2008, the
Wall Street Journal Asia reported
talks between the two countries,
leading to a mutual support for the
financial markets, trade, and invest-
ment in both countries. This talk
ended in a $20 billion provision in
trade financing with the goal of eas-
ing the credit-market squeeze that is
tightening trade across borders. Vice
Premier Wang Qishan, who led the
Chinese delegation, said Friday that
the two countries have become “in-
terdependent,” so that “improving
China-U.S. cooperation is critically
important for both countries and
for the whole world.”
However, trade ties appear
to have weakened substantially.
As reported in the Washington Post,
U.S. Treasury Secretary Timothy F.
Geithner accused China of “manip-
ulating” its currency and, accusing
China of using cash grants, cheap
loans and other subsidies to illegally
aid its exporters. China, in return,
has called the ‘“Buy America”’ pro-
gram “poison to the solution” of
the global economic crisis.
CONCLUSION
The Treasury Department
urged China to “re-balance its econ-
omy by relying more on domestic
private consumption rather than
exports and by further developing
its financial markets.” It seems that
China is heeding the advice. In Feb-
ruary of 2009, China took its first
steps in regionalizing the Yuan. This
was met with approval by research-
ers such as Zhang Bin, an analyst
at the Chinese Academy of Social
Sciences, who says, “Making yuan
a regional currency will serve China
well… it will eventually give China
more power in the financial market
to match its economic size and for-
eign exchange reserve levels.”
Furthermore, despite the fi-
nancial crisis, China has pledged
to maintain its aid and investment
in Africa. From Assistant Foreign
Minister Zhai Jun in early February,
2009, “China will honor its commit-
ment to support the development
of African countries and continue
to encourage Chinese companies
to further invest and establish busi-
nesses in Africa.” In taking steps
like these, China begins the reform
called upon by the United States’
policies. As such, a close eye will be
kept on China and its changing rela-
tions with the United States as the
global economy weathers the latest
recession. BA
BUSINESS ASIA • Spring 2009 • 7
 Cover Feature
Hong Kong: Victims of
Lehman Brothers’ Minibond Fraud
By Felix Lau, Hong Kong University of Science and Technology
W
ith T-shirts labeled “Lehman Fraud”,
many victims of Lehman Brother’s mini-
bond incident have been chanting “Give
me back my money” in Charter Park
and squatting outside government agencies. Though the
event has received widespread media coverage, the of-
ficial response to the victims’ outcry for justice has not
been so sympathetic. Victims, mainly composed of the
elderly, shed tears and protested in vain.
To give a brief introduction: Lehman Brothers
minibond is a high-risk, credit-linked note—a form
of credit derivative usually sold to corporate investors.
However, in Hong Kong, it was sold to the general public
and has been put under the category of bond by various
investment banks. Without much financial knowledge,
the general public was told that minibond is similar to
a low-risk bond and therefore, convinced that Lehman
minibond is as safe as time deposit but with a greater in-
8 • BUSINESS ASIA • Spring 2009
Protestors in Hong Kong
lay signs in the streets con-
demning Lehman Brothers
and other banks for the
Minibond Crisis.
terest yield. As a result, more than 40,000 investors have
put 2.01 billion dollars into mini-bonds and other com-
plex derivative instruments. Yet when Lehman Brothers
filed for bankruptcy protection on Sept.15 last year, the
collective worth of the minibond was of little existing
SOURCE: HTTP://WWW.FLICKR.COM/PHOTOS/JENNOBRYAN/3327343639
value.
UNFORTUNATE VICTIMS TAKE MATTER INTO
THEIR OWN HANDS
Sympathetic to victims’ difficulties, many local
parties offered assistance, in particular, the Democratic
Party in Hong Kong. The Democratic Party wanted
PHOTOGRAPH BY: JENNIFER O’BRYAN
to gather all the victims to file a class action lawsuit.
In March, the investors filed a class-action suit against
HSBC and Bank of New York Mellon in hopes of re-
covering some of their losses. However, the court de-
cided that they should start a civil ligation, which is more
costly and risky. On the flip side, other parties criticized
 QUICK FACTS
the Democratic Party for its seemingly selfish intent, which is to promote
its own public image. The Hong Kong Consumer Council has not extended
its help to the victims yet, even though what the bank did was considered
a violation of seller’s integrity. Furthermore, the Hong Kong Monetary WHAT IS A MINIBOND?
Authority, a regulator of the market, is only making minimal progress in A high-risk, credit-linked note; a
investigation. With such unenthusiastic response from the official authori- form of credit derivative usually
ties, the victims decided to take the matter into their own hands; some have sold to corporate investors.
set up a website called “Lehman Brothers Victim Group” to update the
public about the latest progress on the buyback of the minibond and to WHAT STARTED
raise awareness of the incident. Even though the website has 4,000 visitors ALL OF THIS?
a day and 280,000 visitors within the first 6 months, the number of cases In Hong Kong, minibonds were
handled by the government has amount to less than 10%. sold to the general public and
categorized as a bond by various
investment banks such as Lehm-
an Brothers.
LEHMAN BROTHERS (LEHMQ.PK), 4/1/2008-4/1/2009
WHAT HAPPENED?
37.5
Lehman Brothers filed for bank-
ruptcy protection on September
15th, 2008 and the minibonds
25 were rendered useless.

12.5 HOW MANY ARE

POTENTIALLY AFFECTED?
0
More than 40,000 investors have
4/1/2008 4/1/2009 invested $2.01 billion of their
THE AFTERMATH lifetime savings into minibonds
It will be a while before consumers restore their confidence in the and other complex derivative
market. When various Chinese banks announced that they own the mini- instruments.
bond, their stock prices immediately plunged more than 10%. Two months
after the incident, a special subcommittee was granted power to study the WHAT IS LEHMAN BROTH-
origin of this minibond catastrophe after the initial worries that it would ERS SELLING FOR NOW?
set a precedent for unbridled government interference. The subcommittee As of April 9, 2009, the stock
can cite executives from banks and have access to relevant internal docu- price of Lehman Brothers Hold-
ments. This could be seen as a ray of hope for the victims that one day ings Inc. (ticker: LEHMQ.PK)
their money will be returned. In conclusion, after this unfortunate event, closed at 4 cents a share.Two
citizens in Hong Kong may have learnt a lesson or two when it comes to years ago, the stock price was
buying financial products and more people will start questioning the regu- over $70 a share.
lation of financial instruments.
To learn more about this incident, please visit the website for the
DATA SOURCE: YAHOO! FINANCE

Lehman Brothers Victim Group at http://www.lbv.org.hk/. BA

BUSINESS ASIA • Spring 2009 • 9

 Cover Feature
INDIA’S FUTURE
AMIDST THE PRESENT
FINANCIAL CRISIS
By Nik Kumar, Cornell University
The current financial meltdown has
rocked the world but some coun-
tries are better geared to weather
the storm than others. The emerging
economy of India has unique business
characteristics and growth drivers for a
promising recovery.
10 • BUSINESS ASIA • Spring 2009
PRESENT BUSINESS CLIMATE OF INDIA
WITH THE UNITED STATES experienc-
ing the worst financial meltdown since the Great
Depression of 1929, the U.S. position as the ul-
timate economic powerhouse has become rather
shaky. The aggressive risk-taking by U.S. financial
institutions, high leverage ratios, and ultimately the
collapse of Wall Street have led to colossal gov-
ernment bailouts and nationalizations, sending
shock waves throughout the global financial mar-
kets. While the crisis has rocked the world and left
few countries untouched, some nations have been
hit much harder than others. Ironically, it has been
the sophisticated western markets that have been
dealt the hardest blow, evidenced by the fact that
approximately 56% of the global write-offs and
write-downs by financial institutions have come
from the United States and only 8% have come
from Asia. Notably, the economy of India, a na-
tion with one of the world’s key emerging markets,
is still enjoying a growth rate of 7.1%. While India
has fallen victim to the tentacles of financial crisis,
the growth is still substantial compared to other
ailing economies.
It is not difficult to see why India has fared
better in a time of crisis. The disintegration of the
financial markets in the West was a collapse of the
same complex financial systems that made them
fiscal titans, built as they were on unearned wealth
and high leverage ratios such as uncontrolled con-
sumer debt and rising asset values. As the Rus-
sian Prime Minister Vladimir Putin noted at the
World Economic Forum at Davos, “the explosion
of debt set the pace for rapidly growing personal
consumption standards, primarily in the industrial
world. We must openly admit that such growth was
not backed by a real potential. This amounted to
unearned wealth, a loan that will have to be paid by
future generations.” In contrast, the emerging mar-
kets in Asia, particularly India, have been hit, not
because of “unearned wealth,” but rather of its
role as a key exporter to the U.S. of service support
and label capital (Does outsourcing ring a bell?) As
demand from the Western nations shrinks, tour-
ism, textiles, information technology, and foreign
investment continue to suffer.
However, the fundamental financial prin-
 ciples in India As the trickle-down effect starts to impact rural India,
are still sound the growth potential is enormous since more than half
of India’s population still lives in the countryside. As
“The three pillars of because Indian bank-
the
India enters this century with more disposable income
the banking finan- ing system is at hand, it is slowly moving from a producing econo-
my to a consuming one. If the country can be encour-
cial system—capital, conservative: the govern- aged to consume more, there is unlimited potential for
liquidity, and confi- ment and its growth. Also, India is a young country; the median age
is just 25 years with a large pool of skilled and semi-
dence—remain rela- rhave egulators
a domi- skilled labor entering the spending phase of their lives.
tively unshaken.” nant role to However, all these future growth drivers come
play in the with a caveat. In the wake of the November 2008 ter-
banking system with over 70% of assets and liabilities rorist attack on Mumbai, businesses must consider the
held by government-owned banks, as high as 29% re- persistence of political violence. “Fear of physical dan-
serve requirement, and over 90% of loans and depos- ger to employees, executives, and property can muddy
its belonging to domestic category. The three pillars the sentiment towards India,” says Gunjan Bagla, a
of the banking financial system—capital, liquidity and consultant to US companies in India. With the upcom-
confidence—remain relatively unshaken. Also, India ing general elections to be held in May 2009, the world
has one of the highest savings rate in the world of is anxious to see if the new government will take time
about 33%, primarily due to the fact that the country to focus on policy concerning economic development.
has no social safety net in the forms of social secu- All in all, I believe India will continue to show resil-
rity, medical, and disability payouts. A natural desire ience in the face of the global economic meltdown,
for security, therefore, fuels personal savings. For ex- thus revealing a promising future for the emerging
ample, the vast majority of Indians spend their entire economy. BA
lives saving money to buy a house. It is very rare that
they will take out loans from a bank and incur debt to
finance their lifestyle. The notion of living on credit is
a novelty. Another unique feature particular to India is
the large remittances it receives from its non-residents
living overseas. Approximately 50% of the remittances
are used for families’ maintenance, 20% is deposited
in bank accounts, 10% is invested in property, and less
than 3% is invested in the equity markets. In fact, India
is the largest remittance receiving country in the world.
These remittances play an integral role in the Balance
of Payments and are seen as a stable source of external
income. So, in essence, India is by default much more
prepared to deal with the crisis.

FUTURE GROWTH DRIVERS OF INDIA

Since 2003, both corporate and infrastructure
investments in India have been stimulating growth in
the country. Though the spectacular growth rate may
have slowed down in the past decade, it is bound to
shoot up. In recent years, a growing middle class with
fattened wallets has spurred the overall consumption,
which continues to grow at a stable rate of 8% per year.

BUSINESS ASIA • Spring 2009 • 11

 Investing
Asia Equity Focus:
By Zoie Teng, Cornell University
L
INTRODUCTION
ast year was a disappointing year for every-
one. The U.S. housing market collapsed. The
bankruptcy of Lehman Brothers has prati-
cally destoryed investors’ confidence and financial
market stability. Fears about further deterioration in
the banking sector have also triggered intense dele-
veraging and unwinding processes, which left major
stock indexes in the global financial markets to plum-
met. For example, MSCI’s Asian Index fell 43 percent
in 2008. As the U.S economy had its worst quarterly
performance since 1982, contracting at a 3.8 percent
rate in the fourth quarter of 2008, it is hard for me
to be bullish about the outlook of the financial sector
in 2009.
In Asia, the talk of the “worst recession” since
the Great Depression has become a popular conver-
Asia outperforms U.S. and World since November 2007
PERCENT PERFORMANCE MSCI ASIA-PACIFIC EX-JAPAN
30
25
20
15
10
5 cerns have dragged the Hang Seng
0
12 • BUSINESS ASIA • Spring 2009
sation topic. The Chinese Premier, Wen Jiabao, said
in a keynote speech at the World Economic Forum
on January 25th, 2009 that “the current crisis has in-
flicted a rather big impact on China’s economy.” He
expects the ongoing financial market turmoil will
continue in 2009, particularly in the first and second
quarters. If the trading environment in Asia remains
negative, will there be a second wave of the global fi-
nancial crisis, as warned by the Hong Kong Monetary
Chief Joseph Yam Chi-kwong? More importantly,
when will be the best time to invest in the Asian eq-
uity markets and what are the most valuable invest-
ments in these current market conditions?
ROAD TO 2009: BIGGEST CHALLENGE FOR
ASIAN FINANCIAL MARKETS SINCE WWII
Banking businesses in Hong Kong look grim
too. The macroeconomic environ-
MSCI WORLD
ment has considerably worsened.
S&P 500
The continuous net outflows from
the domestic equity markets weigh
SOURCE: THOMSON REUTEURS, NYTIMES
on heavy investors’ attitude towards
Asia’s financial markets. These mar-
ket uncertainties and liquidity con-
Index down to around 10,700 to
11,550.
 Total Deficit or Surplus as a Percentage of US GDP: 1970-2019
EXTERNAL: WEAK MACROECONOMIC
TRENDS AND CASH DRAINAGE FROM CHI-
NESE MARKETS
The significant worsening of the macro environ-
ment in the U.S. has made Asian equity markets much
more volatile in the short run. The ISM Manufactur-
ing Index, a key index that measures the U.S.’ manu-
facturing activity, plunged to a record low in Decem-
ber. With the bigger-than-estimated drop in U.S retail
sales and the concern that the unemployment rate is
on rise, U.S. consumer spending is likely to deteriorate
over the next three to six months. In mid-February,
the financial epidemic spread to Eastern Europe. The
dwindling confidence concerning the extent of bad
loan risks faced by the biggest banking institutions has
prompted currency devaluation and sell-off of bank
stocks in eastern European countries. Furthermore,
China equity funds have experienced a net outflow of
USD $0.73 billion since 2007, according to Nomura
research data. These figures indicate that liquidity in
the Shanghai A-share market continued to contract in
February, fueling concerns that more money will flow
out of the domestic equity markets. The upside poten-
tial in Asian stock markets will be limited in the first
half year given the difficult economic environment
with high underlying uncertainty.
INTERNAL: FALLING CORPORATE EARNINGS
AND THE STRUGGLE OF MANUFACTURING
BUSINESS
While major companies in Asia reported bigger-
SOURCE: CONGRESSIONAL BUDGET OFFICE
than-estimated loss in earnings in the past few months,
we still see scope for further earning losses in coming
days, according to Po Wing-ho, the director of Credit
Suisse APAC Asset Management. He stressed that net
profits of some Chinese corporates have been overes-
timated by the market, as he expect to see a downward
return on equity (ROE) adjustment from 17 to 12 per-
cent. I believe that such corporate earning risk will
remain a big obstacle for a turnaround in the domestic
equity markets.
The survival of manufacturing business in China
will be another delay for a turnaround in the China
equity markets. According to rough official estimates,
small business in China accounts for about 60 percent
of China’s GDP, and employs about 70 percent of the
country’s labor force. However, 62,400 companies in
Guangdong, a manufacturing and trade hub in China,
have shut down in 2008. If the situation continues to
get worse, we would expect to see more downside risk
in China.
CAN THE GOVERNMENT’S ECONOMIC
STIMULUS PLAN SAVE US?
On January 28, the House passed an US$816
billion stimulus package to help shore up the finan-
cial system. The US stocks rallied after President
Obama announced a “Bad Bank Plan” which would
help clean up toxic assets that are currently held by
American banks. Moreover, the Chinese government
unveiled a US$586 billion fiscal recovery plan, provid-
ing credit support for manufacturers of ten sectors,
which includes housing, rural infrastructure, auto car,
and steel. It is hoped that these fiscal spending, tax-
cuts and measures that create jobs for people would
help alleviate the negative effects of jobless problems
and other macro weaknesses, making the outlook for
Asian equity markets more promising.
So, the question now becomes: can we depend
on the government plan to stop the global recession
from deepening? The answer is not necessary. The
key driver in this current market conditions is liquid-
Investors may want to pay
special attention to the
Chinese markets, as they are
believed to be the key for recov-
ery growth during this period of
economic uncertainty.
ity. However, the market now becomes a very
dynamic place and has so many uncertainties com-
pared to the past. We are unsure about whether the
BUSINESS ASIA • Spring 2009 • 13
 Obama administration’s economic stimulus plan will

45.0%
be passed by the Congress. It is even more difficult to
HIGHLIGHTS OF U.S. $825 BILLION STIMULUS PACKAGE INTRODUCED BY HOUSE DEMOCRATS

gauge whether the balance sheets of the world’s big-

$87B
gest banking operations have been cleaned up. Many RAILWAYS, HIGH-
investors now prefer to sit on cash amid market un- WAYS, AIRPORTS,
AND POWER GRIDS
TO STATES, certainty or are still nursing their wounds from last
INCLUDING MED- year’s market onslaught. These fears can make Asian
25.0%

BREAKDOWN OF CHINA’S $580 BILLION STIMULUS PACKAGE

ICAID REIMBURSE-
businesses contract further in the coming year, which
MENT POST-DISASTER
in turn lead to even greater fear. The vicious cycle

$39B
RECONSTRUCTION
might last for a long time.

TO LOCAL SCHOOL
As Ben Bernake, the former Chairman of Fed-
eral Reserve Bank, cautioned, “fiscal stimulus alone
9.3%
DISTRICTS & PUBLIC RURAL DEVELOP-
COLLEGES
would likely not be enough to prompt a recovery in MENT AND

$30B
the economy”. Given the current difficult environ- INFRASTRUCTURE
ment, the equity markets in Asia are likely to be quite PROJECTS

8.8%
TO EXTEND HEALTH volatile in the next few months. However, I expect
INSURANCE COV- to see more upside potential in the China and Hong
ERAGE TO UNEM- Kong equity markets, taking into account the coun- ECOLOGY &
PLOYED try’s economic growth potential and the oversold lev- ENVIRONMENT

$30B els. I would suggest investors to stay cautious and pay

close attention to signals of market stabilization such
7.0%
FOR HIGHWAY CON- as positive economic outlook, improved profitability
AFFORDABLE
STRUCTION for 2009, balance sheet cleanup for most financial in- HOUSING

$27B stitutions, and further government stimulus policies.

Investors may want to pay special attention to the
4.0%
FOR UNEMPLOY- Chinese markets, as they are believed to be the key
MENT BENEFITS INDEPENDENT
for recovery growth during this period of economic INNOVATION

$12B
uncertainty.

TRANSIT AND RIAL

Hopefully, investors’ confidence improves as
the year unfolds and we will have some good news to
1.0%
HEALTH, CULTURE, SOURCES: NEW YORK POST AND U.S. GLOBAL INVESTOR, INC.

PROJECTS share by then! BA AND EDUCATION

14 • BUSINESS ASIA • Spring 2009


Good News in Bad Economy:
the Philippine Economy Remains Strong
By Aaron Vasquez , New York University
T he domino effect triggered by the U.S. subprime
mortgage crisis has crippled many countries’ econo-
mies on its path of destruction. Indeed, very few have
been spared. Nonetheless, there are some lucky ones.
The Philippines has been growing rapidly in recent
years, and though it has been affected by the current
financial crisis, it is better positioned than many of its
Asian neighbors to weather the current financial crisis.
In 2007, the Philippine economy grew by 7.5%, the
fastest rate in almost 31 years, but as the economic
downturn spread around the world, GDP growth in
2008 slowed to 4.5%. In 2009, the Philippine govern-
ment is forecasting a similar growth rate of 4.4%.
Unlike most countries in Asia, the Philippine
economy is driven more by consumer demand than
exports, with consumer spending contributing about
70% to GDP, compared to about 30% of GDP for
China. So, Philippine consumers are greatly benefiting
from slowing inflation. This spending is also bolstered
by overseas remittances, which make up about 10%
of the economy. These remittances come from work-
ers employed in relatively stable industries, such as
healthcare. In fact, in February, remittances grew by
about 5% compared to last year.
Domestic tourism is also seeing growth as more
Filipinos take fewer vacations overseas. The local
hospitality industry is expected to see growth, and
according to the Philippine Department of Labor and
Employment, over 3,000 job openings are expected.
Many international hotel companies are continuing
15 • BUSINESS ASIA • Spring 2009
Investing
with their plans for expansions in the Philippines,
with Fairmont Raffles Hotels International planning
a high-end Raffles Hotel and Residences in Makati
and Shangri-la planning a new hotel in nearby Boni-
facio City.
The largest property developer in the Philip-
pines, Ayala Land, is also keeping its capital expen-
ditures for 2009 relatively unchanged from last year,
falling just 5%, from 18.9 billion PHP to 17.9 billion
PHP, and the largest mall operator, SM Prime Hold-
ing, is planning to build 3 new shopping malls, 16
new supermarkets, and 5 new hypermarkets in 2009,
growing at a faster rate than last year.
The Philippines has not been as badly af-
fected by the crisis, because in addition to growing
through consumer demand rather than the export-
driven growth of many of its neighbors, its has had
conservative lending policies and has shunned away
from complex derivatives, which has made up less
than 1% of banking assets in the Philippines.
Even though the Philippines is not gasping
for air in the current global economy, it still faces its
share of problems. Its infrastructure needs major
upgrades, and the poverty rate still hovers at around
30%. To combat these problems, the Philippine gov-
ernment plans to create 800,000 new jobs through its
300 billion PHP stimulus package that will focus on
building infrastructure, improving its social services,
and cutting taxes. BA
BUSINESS ASIA • Spring 2009 • 15
 Technology

Rise of the Digital Dragon

By Eugene Huang, Cornell University

10.2%. 11.1%. 11.9%. These statistics represent INCREASING POPULARITY AS A SEARCH

the phenomenal real annual GDP growth rate of Chi- PORTAL
na over the past 3 years. In comparison, these figures The increasing popularity of Baidu is evident
over the same period for the United States were 3.2% in recent data collected by Comscore, which mea-
, 2.9% and 2.0%. This can perhaps give you an idea sures the search query volumes in China and the
of the rapid pace that the Chinese economy had been United States. These detailed statistical reports reveal
expanding at throughout the past few years. that Baidu had replaced Google as the most popular
With a population of more than 1.3 billion, Chi- country specific search engine in the world in the past
na currently houses the largest number of people in year. While Google amassed 7.398 billion searches in
any country around the world. Add to this the popula- August 2008, Baidu had 7.406 billion searches in July
tion statistics of other countries with a predominant 2008 within the Asia Pacific region.
Chinese population, these figures represent a signifi-
cant proportion of the world’s population. Given that BEYOND SEARCH CAPABILITIES: THE BUSI-
the information technology space within the Chinese NESS OF ADVERTISING AND E-COMMERCE
community is relatively undeveloped compared to its To make things even sweeter for Baidu, its
American and European counterparts, there is cer- growth is not solely limited to search functions. In
tainly much opportunity for gain and profit for those addition to its core competency as a search portal, ad-
who venture into the industry. One of the pioneer vertising represents an important source of revenue
companies which has rose above the competition and for Baidu.
positioned itself as an established name within the As revealed on its website, since starting on Au-
Chinese IT space is Baidu.
Baidu (Chinese: 百度) is the leading Chinese
search engine for websites, audio files, and images.
While Google is a prime choice for any eager user of
the internet in the Western world, Baidu can most def-
initely be considered its Eastern counterpart. Many
parallels have been drawn between both companies
– the most obvious being the uncanny resemblance
of the start page of both search engines. On Decem-
ber 2007, Baidu became the first Chinese company
to be listed on the NASDAQ. It offers 57 products
and services including an online collaboratively-built
encyclopaedia (Baidu Baike) similar to the offerings
of Wikipedia, and a searchable keyword-based discus-
Pure coincidence?
sion forum.

16 • BUSINESS ASIA • Spring 2009

 gust 1st 2007, the Baidu Union ad network now claims
more than 1 billion daily ad impressions or around 30
billion a month. The ad network has exhibited tremen-
dous growth over the 18 months since its inception. IN PICTURES
Furthermore, Baidu has plans to enter the e-
commerce and online payment business in China soon ASIA IS THE LEADER IN
to leverage and benefit from its extensive user base INTERNET SEARCHING TRAFFIC
and search traffic. In preparation of its e-commerce
plans, Baidu has already established a new online pay- UNIQUE SEARCHES TOTAL SEARCHES
ment service called Baifubao, offering similar services (WORLDWIDE 100%) (WORLDWIDE 100%)
as Paypal to the Chinese market. As of September last
year, an impressive number of 40,000 businesses have
already signed up for the beta test of their new e-com- 34%- ASIA- 33%
merce platform. Given China’s immense economic 28%- EUROPE- 29%
potential and its largely untapped e-commerce market, 27%- N. AMERICA- 26%
it appears this venture taken out by Baidu would very
likely be a winning one as well. 7%- S. AMERICA 8%
4%- MIDDLE EAST & AFRICA- 3%

ISSUES WITH COPYRIGHT INFRINGEMENT

Having said all of the above, we must however, TOP 5 SEARCH ENGINES
note that Baidu has, at the same time, been battling (WORLDWIDE: 61,036 MIL SEARCHES)
a whole slew of legal charges over issues concern- AS OF AUGUST 2007
ing illegal music downloads. In more recent times, GOOGLE: 37,094 MIL (61%)
the state-owned China Central Television exposed YAHOO: 8,549 MIL (14%)
that Baidu had adopted fraudulent high cost-per-click BAIDU: 3,253 MIL (5%)
advertisements as its search results and boycotted
MICROSOFT:
smaller websites which did not opt in to its advertising 2,166 MIL (4%)
programs. All these ethical issues have certainly made NHN: 2,044
a significant dent in Baidu’s name and raised concerns MIL (3%)
over its sustainability.

BOTTOM LINE
While Baidu’s entire arsenal of new and excit-
ing products and services promises great potential
in the future to come, its alleged unethical business
practice may very well prove to be its greatest mis-
giving. What’s important is that the management at
Baidu come clean with their business practices and re-
gain the trust of both its investors and the public. So
long as this is fulfilled, who is to say that this Chinese
Dragon is not going to take the Virtual World over-
take Google as the biggest name in the digital realm in
the near future? BA
SOURCE, COMSCORE

BUSINESS ASIA • Spring 2009 • 17

 Real Estate

Tale of Two Cities:

Shanghai and Hangzhou Real Estate
By Christy Ai and Barbie Hsu, Cornell University

T he discrepancies between the major cities and

rural areas in China are shocking to many
first-time visitors. On one hand, you have
modern skyscrapers overlooking spacious boulevards
in Shanghai. On the other hand, you have rural areas
names.
Many comparisons can be drawn between
Shanghai and N.Y.C. Shanghai is organized into rings
while N.Y.C is divided by districts. Socio-economic hi-
erarchy goes hand in hand with the mapping of the
suffering from extreme poverty and inadequate rings or districts. Just like Upper East Side, the Inner
infrastructure far away from the coastline and Ring is for the rich while the Outer Ring away from
commercial hubs. Therefore, it shouldn’t come as a the city center is for the working class. Workers who
surprise that everyone wants to live in the city. Because live in the Outer Ring often have to spend two hours
the demand is more than the supply can satisfy, the on road to get to work. The price difference in these
housing prices in major cities has become exorbitantly two areas is drastic. The average value of real estate is
high in recent years. about $800/square foot in the Inner Ring. At the bor-
Take Shanghai for instance. It is the glamor- der between Shanghai’s Inner and Outer Ring, hous-
ous commercial center in China, Beijing being the cul- ing price goes
tural and political center. As a result, Shanghai is com- for about $500/ Of the Fortune 500
pared to New York City for its cosmopolitan nature square foot, and World, over 300 of the
and bustling commercial areas. Many major interna- once you reach
tional corporations which want to take advantage of the outskirts of company’s overseas
China’s growing economy see Shanghai as a gateway Shanghai, hous- Headquarters are
to China and have acted accordingly. Of the Fortune ing price immedi- located in Shanghai.
500 companies over 300 has established their Chinese ately drops down
headquarters in Shanghai. Also, consumers in Shang- to $100/square
hai have greater spending power than the rest of the foot.
country and are more receptive to international brand Commercial space is also selling fast in Shang-
hai. For example, the Shanghai World Financial Cen-

18 • BUSINESS ASIA • Spring 2009

ter was a popular hit among investors. $1000/square foot with some go-
Located in Pudong, the commercial ing as high as $2000/square foot.
center in Shanghai, the building is a Hangzhou was voted As Shanghai’s elites bid on the limited
showcase of grandeur and modernity. as Number One lakeside view, the housing price is ex-
Designed by Kohn Pederson Fox, it Best Place to Live in pected to keep on rising for years to
consists of 101 stories and stands 1,614 come.
feet tall. There are many buildings like Asia by the United Though investors seem op-
this, yet what is most surprising in the Nations, and this timistic about Shanghai and Hang-
light of economic downturn back then publicity added to its zhou’s real estate markets and expect
is that 40% of the seventy-floor office a hefty return on investments, prop-
space was already reserved at its open- value. erty markets in Asia have generally
ing on August 28th, 2008. This kind slumped in recent months. Based
of market behavior also applies to on Real Capital Analytics numbers,
other commercial real estate mar- there has been a dramatic decline in
kets. According to Financial Times’ sales – 68% in the third quarter from
Daniel Thomas, Grosvenor, a prop- last year. Since then, new regulations
erty company owned by the Duke of in China were also created to prevent
Westminster, has committed $600 million for shopping “speculation and land hoarding” and Asian banks are
centers in China. being more cautious in giving out loans. All these fac-
Just two hours from Shanghai, Hangzhou is tors are further reducing the volume of property sales.
a mid-size city famous for its natural and architectural At the end of the day, the story of rising hous-
scenery. It is often considered the private backyard re- ing price demands an explanation: investors are flock-
sort for the Shanghai elites who want to occasionally ing to China because they believe in its high growth
get away from the bustles of the city life. Known for potential. With over 1.3 billion people, China is des-
its tranquility and breathtaking view, the area near the tined for economic growth due to the size of its popu-
West Lake (XiHu) has been attracting developers and lation alone. As people make more money, they would
consumers alike. Don’t be surprised! These resort homes have more dispensable income. They will want more
can ask for a higher price than the first-tier apartments consumer goods, more shopping malls, and of course,
in Shanghai. The apartments within walking distance more office space for burgeoning businesses. BA
to the West Lake have an average selling price of about

Hangzhou, the capital of Zhejiang

province, is a 2 hour drive south-
west from Shanghai.

BUSINESS ASIA••Spring
BUSINESSASIA Spring2009
2009••19
19
 AUTHORS’ BIOGRAPHIES
Dr. Peng Liu, Assistant Professor of Real
Estate and Finance, joined Cornell’s fac-
ulty in 2007 after obtaining a Ph.D. in
finance and real estate from the Haas
Business School at University of Cali-
fornia, Berkeley. Prof. Liu teaches real
estate and Securitization and other
Structured Financial Products for newly
created Minor of real estate at Cornell.
Professor Liu is affiliated with the Cen-
ter for Real Estate Finance, Program in
Real Estate, and the East Asia Program.
His primary research focuses on asset
pricing and hedging in the real estate
market. Prior to his career in academ-
ics, Prof. Liu worked in various indus-
tries, including engineering, advertis-
ing, consulting and hedge funds.
Mr. Haibin Lin, Founder and Managing
Director of Shanghai Foresight Invest-
ment Management Co. Ltd. The compa-
ny is a boutique real estate investment
bank, focusing on real estate invest-
ment strategy, M&A and corporate fi-
nance. Before founding the company,
Mr. Lin worked GIC Real estate, a Singa-
pore based real estate investment firm,
and real estate development compa-
nies such as China Resources Land and
Hutchison Whampoo. Mr. Lin received
MBA from the Haas Business School at
University of California and M.S. & B.S.
of civil engineering from Tsinghua Uni-
versity.
20 • BUSINESS ASIA • Spring 2009
Where is China’s Real
Estate Market Heading?
by Professor Peng Liu, Ph.D., Cornell Univeristy
and Haibin Lin, Managing Director of Shanghai Foresight Investment Management Co. Ltd.
Translated by Ivan Au, Cornell University
Many Chinese millionaires and billionaires were born out of
the real estate boom in the past decade. Though the imma-
ture housing market has been dealt a blow by the current
economic crisis, we can still expect a recovery in the near
future.
I. CHINA’S REAL ESTATE MARKET IS CURRENTLY
UNDERGOING THE LARGEST ADJUSTMENT IN THE DECADE
In 1998,
China’s real estate market entered a Golden Era.
After China cancelled its welfare housing distri-
bution system, housing sales has been soaring at an average annual growth
rate of 23%. It was not a rare sight to see people lining up outside of a
new apartment building with straight cash for down payment. As a result,
the real estate industry has become an essential backbone of the Chinese
economy. Since the end of 2007 though, the housing market has encoun-
tered some problems along its path of glory. National housing sales have
declined by 29% in 2008; in the ten largest cities such as Shanghai and Bei-
jing, housing sales further have shrunk by 50%. Statistics indicate that the
housing price has already begun to fall from its peak in November 2007.
For example, Vanke, the largest real estate developer in China with 2.34%
of market share, has seen its prices decline from RMB 1,040 per square
foot to RMB 720 per square foot.
The severity of this adjustment has been reflected by the Real Estate
Industry Confidence Index. The index dipped during the third quarter
in 2008 as the land market experienced major volatility. Until the end of
2007, land price increased exponentially and available land was a rather rare
commodity in many cities. Today, there is only minimal participation in
land auctions. The second-half of 2008 witnessed large amounts of failed
auctions from the lack of bidding, resulting in plunging land price.
II. WHILE THE CAUSE OF THIS ADJUSTMENT HAS NO DIRECT
RELATIONSHIP WITH THE SUBPRIME MORTGAGE MARKET,
SUBPRIME MORTGAGES HAVE INSTIGATED GLOBAL ECO-
NOMIC VOLATILITY, INCREASING THE INTENSITY AND DE-
GREE OF THE ADJUSTMENT IN CHINA’S REAL ESTATE MARKET
The financial real estate market in China is not equipped with the
infrastructure necessary to create subprime mortgages. First, the China’s
 Private Residential Housing-Supply, Demand, and Price
from CEIC, J.P. Morgan estimates
real estate financial products are extremely simple.
Mortgages securitized by long term floating interest
rate are the dominant product. There are no com-
plex mortgage products, and certainly not mortgage
backed derivatives. Furthermore, as property prices
continue to increase, the China Banking Regulatory
Commission would continue to increase the amount
of down payment required by the bank and restrict
the mortgage lending policy. Lastly, unlike the United
States, China has maintained its benchmark interest
rate at 5% for the past few years.
In October 2007, China began to implement a
set of policies to restrain the rapid growth of the
housing prices, initiating the current round of ad-
justments. Based on the timeline, the adjustments are
not related with the subprime mortgage crisis itself.
Moreover, the main reasons behind the increase in
prices are the soaring demand for housing and the
skyrocketing stock prices due to a surplus of liquid-
ity.
Although subprime mortgages do not have any
direct influences on the Chinese real estate market,
the subprime mortgages have severely affected the
Chinese economy, thus starting a domino effect. The
weakened economy has caused demand for housing
to shrink. On the flip side, the government intro-
duced a new set of policies to stimulate the real es-
tate market in October 2008. This policy may pos-
sibly speed up the volatility in the real estate industry.
III. THE CHINA REAL ESTATE MARKET IS
GENERALLY HEALTHIER THAN THE REST OF
THE WORLD, AND IS EXPECTED TO RECOV-
ER WITHIN THE NEXT TWO YEARS
The basic need for housing is far from satisfied.
Due to urbanization and change in household struc-
tures, by 2025, the population residing in Chinese cit-
Real Estate Entrepreneurs Confidence Index
from the China National Statistic Bureau
ies will increase by 350 million, of which 240 million
are new immigrants. Additionally, the number of
people per household continues to decline, further
increasing the demand for housing. Another basic
need is the unprecedented demand for improvement
in living standards. Despite the 10 years of devel-
opment, 75-80% of families in first and second tier
cities currently still reside in welfare residences con-
structed by the government prior to 1998. Both of
these basic needs account for almost 80-90% of the
current residential demands, and are most likely to
persist into the future.
Fortunately, the high overall savings rate in
China guarantees household spending. At the end
of 2008, savings rate among the Chinese people
reached RMB 22 trillion dollars, growing at 25.7%
compared to the same period last year, making up
74% of China’s GDP in 2008.
Lastly, while residential prices have increased
rapidly in the past few years, disposable income per
capita has also simultaneously increased. Yet, hous-
ing affordability had only worsened between 2003
and 2005. But rest assured, since the gap is not con-
siderable, the housing affordability would quickly re-
bound to the historical average within the next two
years of adjustments.
Generally speaking, the Chinese housing mar-
ket is relatively healthy. Right now, the main disease
is the surplus of residential inventory that only time
itself would cure. Once the inventory returns to a
reasonable level, the rising momentum of housing
prices will be revived. Among the six largest cities,
five of them experienced an increase of 50% in resi-
dential inventory level compared to the same period
last year. As a result, these inventories have strained
the cash flows for many developers, forcing devel-
opers to reduce prices. After prices reduce, the deal
BUSINESS ASIA • Spring 2009 • 21
 Property Sales Volume Housing Affordability
from Centaline from CEIC, J.P. Morgan estimates

flow will hopefully recover. The length of this adjustment process depends on the inventory of each city and is
predicted to take around half a year to a year and a half.

IV. AFTERTHOUGHTS
The current subprime mortgage crises will probably change the structure of China’s real estate investment
funds. Around 2005, a large amount of investment flowed into the real estate industry in China, one of the big four
emerging markets. In contrast, due to government regulations, there were almost no Chinese real estate investment
funds from mainland China as of 2005. Nonetheless, the number of Chinese real estate investment funds has been
steadily growing. Though international real estate investment funds entered the Chinese market in the early 90s,
most of them have remained relatively small in size and only a handful have become big market players, i.e. GIC
RE, Deutsche Bank, and Morgan Stanley. As of 2008, around 40 international investment funds were active in the
Chinese real estate markets. The foreign investors have been hit hard by the U.S. financial crisis, which has led many
companies to lower their prices or even abandon properties earlier purchased. Mass layoff has become a common
trend among these companies all the while China introduced new policies regarding investment funds, giving a
head start to investment funds with a strong background in China such as CITIC Capital and Everbright Alam. As
foreign-owned investment funds shrink and mainland China funds grow, we might be in the process of witnessing
the reshaping of China’s real estate investment funds industry. BA

NEW MORTGAGE LENDING POLICY

JUNE 2003 No-less-than 20% down payment ratio for the purchase of the first self-use housing unit

Mortgage ceiling reduced to 70% for the second property and mortgages no longer pro-
MAY 2004 vided

SEPTEMBER 2004 Monthly mortgage repayment limited to 50% of household income

JUNE 2006 Residential buyers are required to pay at least 30% of purchase price as down payment

OCTOBER 2007 PBoC and the China Banking Regulatory Commission have annouced to impose new
policy new real estate lending and credit policies aimed at quelling speculation through
mortgage controls. The policy will increase down payment requirements for second-
home purchasees to 40% from the current 30%, and raise mortgage rates to 1.1 times
the benchmark one-year lending rate on Sept, 27, 2007. Down payment rules for addi-
tional properties would be determined by individual commercial banks.

OCTOBER 2008 1. Deed tax cut to 1% from 1.5%

2. Suspension of stamp duty (0.5%)
3. Down payment requirement for first time home buyers lowered to 20% from 30%
4. Mortgage rates for first-time home buyers lowered to 0.7 of PBoC benchmark rates

22 • BUSINESS ASIA • Spring 2009

 Real Estate

Risks in China’s
Housing MarkeT by Ivan Au & Jeremy Vasquez, Cornell University
In the long run, what are the underlying risks in China’s housing market? We sat down with
Professor Liu as he further explained the unique characteristics of this market.

BA: Business Asia loan is a completely novel concept. As a result, such

PL: Peng Liu
BA: What risks do you think are unique to the real
estate market in China?
PL: The most important risk is the forward risk associ-
ated with pre-completion sales. Selling before comple-
tion is a characteristic of developing real-estate mar-
ket s in emerging countries. This market phenomenon
takes place because it is beneficial for both sides. De-
velopers want to minimize the risk of being unable to
sell out all their units and consumers want to lock-in
the pricess to hedge against potential increases later
on. Usually, homes are delivered in about a year, during
which the prices can double. For the developer, there
has yet to be a mature mortgage market in China. For
the consumer who have been historically assigned wel-
fare housing by the government, taking out a mortgage
loans were not readily available in China. Right now,
the most pressing issue is that the real estate market in
China has leveled out as housing prices expect to fall
further. Many buyers have chosen to walk away after
placing their down payments and the banks do not
want to be liable for mortgage defaults when all they
can get are half-completed construction sites.
BA: What is the nature of the commercial real
estate market in China?
PL: The commercial real estate market in China which
includes hotels and retail malls is still in its early stage.
There is a lot of demand from foreign investors who
are looking for investment opportunities, but unlike
the United States which has publicly traded real estate
investment trust (REITs), the system lacks transparen-
cy and investors don’t have sufficient information for

BUSINESS ASIA • Spring 2009 • 23

historical income and transactions. The only information
available is from consulting firms. Instead of having ac-
cess to public information at your fingertips, you would
need to ask a local consulting company for information
on comparable transactions in the past.
BA: What type of real estate is apt for quicker recov-
ery- residential or commercial?
PL: Residential real estate will recover relatively sooner.
The current adjustment is due to overpricing. The de-
mand is not the problem; the affordability is the main
concern. As price adjusts, there is a lot of waiting de-
mand. Commercial properties normally have long-term
leases so they lock in expenses for the tenants. Therefore,
I do believe that it is going to recover at a slower pace.
Tenants who want to secure another long term lease
would want to wait and spot a sign of recovery before
locking themselves into any kind of contract. In a sense,
there will be a response lag.
BA: Do Chinese consumers take as much pride in
home ownership as Americans do?
PL: The U.S. government encourages homeownership
because it sees residential homes as the cornerstone for
a stable social structure. Therefore, it extends favorable
mortgage terms to most people, sometimes unfortunate-
ly to individuals with subprime credit. But in China, I
would say that the majority of Chinese population are
not homeowners. Nonetheless, they do greatly value
home ownership and the turnover rate is low in many
Asian countries. The average relocation rate in the United
States is about every 4 years while that in China is much
less frequent. People just don’t like to move and they stay
fixed in one place for a long period of time. One similar-
ity between the U.S. and China is that the middle class
views second homes in suburbs as a way to iconize its
success. Especially with most major cities being heavily
populated and expensive, people definitely would like to
buy a spacious second home somewhere in the suburb.
The only thing holding them back asides from monetary
restraint is the lack of proper infrastructure. As a result,
the growth in that area is limited for now.
BA: What role do local governments play in improv-
ing the regional real estate market?
PL: The goal for the local government is to stabilize the
local economy and to maximize employment opportuni-
ties and GDP growth. Right now, the Chinese govern-
ment likes to have centralized power. If it wants real
24 • BUSINESS ASIA • Spring 2009
estate properties in a certain area, it would extend fa-
vorable tax rate in the area to encourage investors. In
contrast to the U.S., a local government in China has
rather limited power.
BA: In the wake of this financial crisis, will Chi-
nese banks become even more conservative in
their lending to the real estate developers? Will
there be any consolidation in the real estate indus-
try as poorly-funded developers get driven out?
PL: Chinese banks, especially state-owned enterprises,
don’t like to deal with non-performing commercial
loans. For these non-performing loans, banks some-
times cannot even get the principal back. The only rea-
son for which the banking industry was eager to lend
is because the housing prices were soaring and borrow-
ers were paying on time. However, the credit system is
still immature. For example, credit cards were rare in
China until 2005 and banks didn’t like to share infor-
mation with one another. There is nothing like a FICO
score. Furthermore, though the ratio of loans allocated
to real estates is growing, it is still under 10%, which is
far less than the U.S. ratio. The global financial crisis is
affecting lender behavior as banks realize the potential
amount of risk underlying each transaction. There is
also a heated debate as to whether China should have a
securitization market, where cash flows are securitized.
Indeed, it has even attempted to do so with the first
mortgage-backed security (MBS) deal in China issued
in Shanghai. However, the demand for such financial
product is minimal. In general, banks want real estate
loans on their balance sheets because they generate
more income than other business loans. Up until two
years ago, there were no shorts and options. There-
fore, there are fewer ways to hedge risks. Maybe, it is
a good thing that there aren’t that many complicated
derivatives to confuse people, but China should have
the fundamental financial instruments, such as credit
swaps and options. That being said, China should
also learn the lesson from the United States: don’t
rely on the complicated, exotic derivatives too much.
Though these derivatives can increase liquidity and
help hedge risks, they can also be lethal at times. BA
Professor Liu has also co-authored a more detailed explanation to the real
estate market in China. The article “Mortgage Prepayment and Default
Behavior with Embedded Contract Risks in China’s Housing Market”
can be found in the Journal of Real Estate Finance and Economics, Vol.
38, No. 3 2009.

Mainland China:
Home of 106 Billionaires
and More than 800
Million Poor
“To get rich is glori-
SOURCE: HTTP://CHRONICLES1289.DEVIANTART.COM/ART/CALLIGRAPHY-41569166
ous,” said Deng Xiaoping, former
leader of the People’s Republic of
China. And glorious it is, China
is home to more billionaires than
anywhere else, except the United
States: 106 billionaires to date (in
U.S. Dollar). Members of this elite
circle in China buy body lotions
that are more costly than gold of
equivalent weight , dine at Japan’s
Liao Li where 15 courses are served
ARTWORK BY: MICHAEL KUO
with one-of-a-kind antique utensils
and finish the day with a hefty mil-
lion-dollar bet at the Hong Kong
Horseracing Club. One thing is for
By Christy Ai, Cornell University
sure—China’s elite definitely knows
how to enjoy life.
But what about the rest of the
population? There are more than 800
million poor in the countryside, mak-
ing a living off farming and other
labor-intensive occupations. Farm-
ing provides food but very little cash,
and most farmers do not get social
security. Therefore, they must save
and budget carefully in case of emer-
gencies. Even worse, the weather can
wreak havoc without notice in ad-
vance. For example, this year’s snow-
fall destroyed almost 3,000 square
miles of crops, leaving many families
in desperate need of food and money.
Note: The Chinese Character in the
background image means fortune
GROWTH AND INEQUALITY
History has shown us that
a wide income gap poses serious
dangers to society. Excessive in-
equality raises crime rate and stifles
potential economic growth. Latin
America and the Philippines are
classic examples where growth has
been stymied by a high Gini ratio, a
measure of inequality of the wealth
distribution. China’s Gini ratio is
currently almost on par with that
of Latin America’s – is it in danger
of falling into the same trap?
China has many inherent
problems and inequality often
 serves as the scapegoat. Rural pov-
erty in China is a real problem,
and will continue to be a problem
whether the billionaires splurge on
$2,000 t-shirts or not. Unemploy-
ment, central budget control, and
lack of social security are other
fundamental problems that many
blame inequality for. While no one
can deny the link between wealth
inequality and social unrest, many
of China’s problems are fundamen-
tal and based more on social class
than wealth.
Among other things, the rich
have now realized the income in-
equality is a
very realis-
tic part of life
and may end
up threaten-
ing the social
stability and
unity in Chi-
na. While they
continue to
lavish them-
selves with
L’Occitane en
Provence and
Mont Blanc,
some are be-
ginning to
take social responsibility seriously.
In 2008, a total of USD $9.4 bil-
lion was contributed by the elite in
China to alleviate the problem of
unemployment within struggling
families. The contributors include
Yu Pengnian who contributed
USD $420 million to health and
higher education and Zhu Mengyi
who contributed USD $158 million
to poverty alleviation, health, and
education. They remember their
humble beginnings and are now
giving back to society. Hopefully,
their actions will inspire others to
26 • BUSINESS ASIA • Spring 2009
follow their path.
OPPORTUNITIES
Though income inequality is
prevalent, social inequality in China
has diminished considerably. Today,
women have fought their way to the
foreground, as evidenced by their
increasing power in business. Two
women lead the rich on the 2008
Hurun’s List: Yang Huiyan, 26, and
Zhang Yin, 50.
The majority shareholder of
property developer Country Gar-
dens, Yang Huiyan becomes the first
Chinese to pass the USD $10 billion
The rich have now
realized that in-
come inequality
is a real part of life
and may end up
threatening the
social stability and
unity of China.
benchmark with her massive wealth
of USD $17.5 billion in assets, mak-
ing her the richest woman in Asia. It’s
a classic rags to riches story but with
a twist of inheritance. Her father
Yang Guoqiang started to acquire
land at the bottom of the market in
the mid 1990’s and worked his way
up to almost 60% of Country Gar-
den, whereupon he then transferred
his shares to his daughter, Yang Hui-
yan.
Zhang Yin, the richest self-
made woman in the world, is the
first woman to top the Hurun List in
2006. Born in a modest household
in Northeastern China, she set up
a waste-paper trading business in
Hong Kong and became the top ex-
porter of scrap paper. Through her
hard work, she has tripled her ma-
jority share in Nine Dragon Paper
to USD $10 billion this year.
Currently, the rich in China are
growing at a faster rate than their
Western counterparts. Property de-
velopment and manufacturing are
the two greatest contributors to
this recent surge in wealth, both of
which are primarily based in Guang-
dong. However, while these busi-
nessmen
are mak-
ing their
fortune in
Guang-
dong, we
also need to
see the flip
side of the
coin. The
minimum-
waged,
70-hours a
week, fac-
tory work-
ers are
sending
their hard-earned money back to
their impoverished homes in the
country side and fighting an ageless
battle against poverty.
For sure, the underdeveloped
and loosely regulated economic en-
vironment in China presents plenty
FROM LEFT: THE DAILY MAIL, CHINA DIGITAL TIMES
opportunities for today’s sharp and
ruthless young entrepreneurs who
hope to become the next billion-
aire. But, will this generation help
to close the gap between rich and
poor? The future of China will be
largely dependant upon their deci-
sions. BA
 Lifestyle

Doctor's Orders:
Check Out Aurum By Wes Yiu
“There are many things that make Singapore a popular food destination. These include the culture, the tastes, and the variety. In
an effort to keep pace with other hot-spots of delectable cuisine, Singapore enters the fray with its restaurant Aurum. In Latin, the
term Aurum means gold, giving the restaurant a hip and stylish feeling, geared towards attracting the young adults crowd. Once
you step inside, you will embark on an unforgettable journey, witnessing innovative ways that dinner can be prepared and served.”

Famous for the eccentricity of its food, Asia that one would be placed on if undergoing surgery.
is a paradise for gourmet diners who are seeking exotic The tables might give diners an ominous feeling that
tastes. In recent years, the presentation has also taken on they are about to “go under the knife.” Moreover,
an unconventional touch: the famous toilet restaurant in silver utensils are located in drawers in the operating
Taipei, the jail-themed brasserie in China and the hos- table— drawers that are usually reserved for scalpels
pital-themed eateries in Singapore. In an effort to keep and other surgical tools. Given the restaurant’s décor,
pace with other hot-spots of delectable cuisine, Singa- I cannot help but wonder if elderly patrons should
pore enters the fray with the restaurant Aurum – pairing walk in expecting to be given sponge baths by the staff.
food and medical surgeries. As you step inside, you will The restaurant is treading in dangerous, un-
embark on an unforgettable journey, witnessing revolu- charted waters with its extremely macabre theme. Sin-
tionary ways in which dinner can be prepared and served. gapore is known for its large Chinese population. As a
Once you step inside, you will immediately find person of Chinese lineage, I can say that Aurum’s ap-
the lavish restaurant stays true to its name.
In Latin, the term Aurum means gold, giv-
ing the restaurant a hip and stylish feeling,
which is geared towards attracting the young
adults. There is no shortage of gold in the
restaurant, from its wallpaper to its notice-
able gold-plated dining chairs that are actual
wheel-chairs. Yes, they are fully-functional and
PHOTOGRAPHS BY ROBERT STEINER

even come equipped with a locking mecha-

nism to keep you in place (I tested them out
personally). To some, the whole restaurant
setup seems a little unnerving. The dining
tables are cold, slick, silver operating tables

BUSINESS ASIA • Spring 2009 • 27

 was the intent of the restaurant itself given its hospi-
tal theme. The Welcome Chrysanthemum Tea is s not
tea in a traditional sense. Instead, the tea is encased in
gelatin and served on a tablespoon, evoking the familiar
memory of being fed cough syrup as a child. As the
waiter brings the steaming broth to your table, he takes
a syringe of olive oil and squeezes the silky noodles into
the broth to form a quite pleasant concoction. From
the Sicilian Green Olives that are mixed with calcium
chloride to the vanilla ice cream served with raspberries
that are frozen with liquid nitrogen, you would be sure
to find prime examples of unique cuisine that only can
be concocted through molecular gastronomy at Aurum.
Overall, it was quite an experience din-
ing at Aurum. I do not doubt that the chefs behind
these concoctions are quite talented. They are cer-
tainly creative and daring, willing to try new things
in the realm of molecular gastronomy. However, one
cannot help but wonder if the dark gothic theme
would hurt the restaurant in the long run. For now,
Aurum certainly has the talent, passion, and origi-
nality to succeed in the world of fine dining. BA

proach seems rather bold as traditional Chinese would

probably feel quite auspicious sitting in a wheel chair
and eating off an operating table. However, perhaps
the younger generation, those who are able to shrug
off the seriousness of death, would not mind the dark
surroundings as they look to be connoisseurs of what
is called molecular gastronomy. Molecular Gastronomy
deals with experimentation of taste and form. Practitio-
ners of the field work to utilize the chemical and physi-
cal processes that occur during cooking, ultimately cre-
ating a work of art so to speak – a dish that pleases the
palate. Not exactly the same as food science, molecular
gastronomy deals with transforming merely ingredients
into a culinary masterpiece that satisfies all the senses.
At Aurum, you will immediately witness the
science used in food preparation. Patrons can peer into
the kitchen and see what the chefs, or rather “doctors,”
PHOTOGRAPHS BY ROBERT STEINER

are preparing. The kitchen is illuminated by bright op-

erating lights, adding to the hospital-themed aura of the
restaurant. You can tell that the chefs even put a twist
on the food. The Singapore Sling tasted eerily close to
cough syrup, with its sweet cherry taste. Perhaps this

28 • BUSINESS ASIA • Spring 2009

 Lifestyle

Destinations: Shikoku
By Joanne Ng, National University of Singapore
Often considered remote and lacking in attractions, Shikoku is
seldom on the list of places to visit among travellers to Japan. The
least populated and smallest of the country’s four main islands,
Shikoku is most famous for the pilgrimage trail of its 88 sacred
temples, but there’s much more to the island than that…

DAY 1, 28TTH DECEMBER: NARUTO, TOKUSHIMA PREFECTURE

Tokushima Prefecture – where our road trip began! Starting here from the northeast of Shikoku and
moving clockwise in a circle through its four prefectures, we followed the same route that pilgrims
have taken throughout the past 1000 years over the next 6 days.
Our first stop was the famous Naruto Whirlpools. Caused by the difference in water level in the
Naruto Strait during the tides, these titanic whirlpools can extend more than 20m in diameter. We
ventured along a 450m walkway beneath the Naruto-Ohashi Bridge for a birds’-eye-view just 45m
above the raging currents. Equally roaring cold winds accompanied the view, but we were still un-
able to get a good picture of the whirlpools. Perhaps we should have taken one of the tourist boats,
which would have placed us directly above the maelstrom!

DAY 2, 29TH DECEMBER: IYA VALLEY, TOKUSHIMA PREFECTURE

Today’s highlights were the well-known vine bridges in Iya Valley. The most popular bridge is the
Iya-no-Kazura-bashi which is reconstructed every three years, though it did not seem as pictur-
esque as the Oku Iya Kazura-bashi, a charming set of vine bridges 30km east.
Iya Valley is one of Japan’s three “Hidden Regions”, and it certainly looked the part. The narrow,
winding mountain roads that snaked through it were the furthest any of us had ever been from
civilization, and the few shops and eateries that hugged the valley’s remote paths were shut due to
the upcoming new year too. Even the ticket counter at the Oku Iya Kazura-bashi was closed!
At night, we homestayed with the Ueda family who make various sweets and snacks from their
home. Their house was in a quiet, out-of-the-way location, and none of us had homestayed while
travelling before. Call us paranoid, but we couldn’t help but wonder if we would survive the night…

DAY 3, 30TH DECEMBER: OBOKE AND KOBOKE, TOKUSHIMA PREFEC-

TURE; KOCHI CITY, KOCHI PREFECTURE.
Our fears were unfounded after all, and we departed feeling slightly ashamed for our
suspicions, especially after Mrs Ueda treated us to her delicious cooking.We begun
the day by taking in the magnificent sight of the valleys Oboke and Koboke, literally
meaning “Great Danger Walking” and “Small Danger Walking”. Their steep preci-
pices and surging rapids certainly did not seem to be for the faint-hearted, although
the most unnerving sight there was a surprise find near Akagawa Bridge. It came with
a warning sign indicating that the city government cannot be held responsible for acci-
dents involving tourists crossing the bridge, which casted serious doubts on its safety!
The afternoon brought us to southward into Kochi City, a quiet, attractive city home
to one of the twelve remaining original castles in Japan. Dinner comprised of one of
Shikoku’s famous products: sliced katsuo-no-tataki, or charcoal-braised bonito fish
with a raw middle. It had a surprisingly meaty flavour, and we had to fight the tempta-
tion to order a second serving.

BUSINESS ASIA • Spring 2009 • 29

 DAY 4, 31ST DECEMBER: SHIMANTO RIVER AND CAPE ASHIZURI, KOCHI
PREFECTURE.
The Shimanto River is Japan’s last freely-flowing river, providing a relaxing and scenic
drive along its banks. According to one of our Japanese teachers, the river is extremely
clean and has its own ecosystem, resulting in fascinating creatures like prawns with ex-
ceptionally long arms. Some of those prawns became our lunch, and we were happy to
discover that they had a fresh, sweet taste.
From the river, we headed to Cape Ashizuri, distinct for its white lighthouse perched
atop its rugged cliffs. Along the 2km walking trail of its impressive coast is the southern-
most point of Shikoku too. There, we gazed across the Pacific Ocean while taking in the
stunning sight of sunlight streaming through the clouds.

DAY 5, 1ST JANUARY: UWAJIMA CITY, EHIME PREFECTURE.

The first day of the new year was unfortunately marred by the closure of all eateries
but fast-food outlets. That Uwajima City is more like a quite town than a city, making
the search for decent meals even harder. A visit to the Taga Shrine and its bizarre ac-
companying attraction made the day worthwhile however. Numerous Shinto Shrines were
closely linked to fertility rituals in the past, and Taga Shrine is one of the few such shrines
remaining. Its grounds are hence home to amusing carvings and statues, and huge tree-
trunk phalluses which provided backdrops to some interesting photos. The highlight on its
grounds though, is the Dekoboko Shindo. This three-storey sex museum is filled – literally
from floor to ceiling – with various prints, drawings, pottery and carvings from all over
the world, including the Karmasutra and Japanese erotic manga. Interested visitors could
even purchase protective charms with dangling male genitalia, but we felt that viewing the
exhibits was enough…

DAY 6, 2ND JANUARY: MATSUYAMA CITY, EHIME PREFEC-

TURE
Despite being Shikoku’s largest city, Matsuyama possesses a tranquil, picturesque charm
in line with the general atmosphere of the island. Rising above the city stands Matsuyama
Castle, a fine specimen of one of Japan’s original castles. The new year celebrations pro-
vided us the opportunity to try our hands at some traditional Japanese new year games
too. One of them was Hanetsuki, which resembles badminton but proved deceptively
difficult to get a hang of! After the morning’s exertions, a visit to the nearby Dogo On-
sen seemed the perfect way to wind down. The oldest hot spring in Japan, Dogo Onsen
looked arresting, with its castle-like architecture and traditional design facets. Unfortu-
nately, it was so packed inside due to the holidays that it was impossible to relax. We ended
up snacking on the area’s famous Botchan-Dango – delectably sweet rice dumplings on
skewers – to calm our spirits instead.

DAY 7, 3RD JANUARY: SHODOSHIMA ISLAND, KAGAWA PREFECTURE

Our final day in Shikoku was spent leisurely driving around Shodoshima Island, northeast of Kawaga Prefecture. Its moderate climate
resembles that of the Mediterranean, resulting in an ideal place for cultivating olives for which the island is famous for. Naturally, we
had to visit Olive Garden, where we strolled through groves of olive trees and sampled a variety of olive products in the souvenir shop.
Their olive oil moisturising lotion seemed a great purchase for the dry winter, although the olive-flavoured chocolate was a souvenir we
all thought we could do without.
On Shodoshima Island also lies an interesting monkey park, and we stopped our car nearby to take pictures of a group of monkeys on
the road. Nature proved somewhat threatening though, when two monkeys tried to enter the vehicle through the open windows. Our
quick reflexes at winding up the windows were all that kept them out! We returned to the main island and concluded our memorable trip
of Shikoku soon after, having had enough interesting experiences….till the time for our next vacation comes around! BA

30 • BUSINESS ASIA • Spring 2009

 Interviews

JAPANESE CUISINE
416 Eddy Street, Ithaca, NY 14850 | (607) 277-6767

Specials Havin g a par ty?

Tuesday- LUNCH & DINNER Contact us for party planning
40% OFF- Rolls, House Sake, Wine and deals!
Thursday
40% OFF- House Sake, Wine contact@miyakeonline.com
(607) 277-6767
Tuesday & Thursday 416 Eddy Street
$7.95 Sake Bomb!!
With a romantic and elegant atmosphere, we offer the
finest sushi selections and a variety of other classic Japanese entrees.

20% OFF 20% OFF 20% OFF 20% OFF

any regular price item any regular price item any regular price item ASIA
BUSINESS any regular
• Spring 2009price
• 31 item
VALID UNTIL12/31/2009 VALID UNTIL12/312009 VALID UNTIL12/312009 VALID UNTIL12/312009
 Interviews
Sitting down with Professor Jeremy Siegel,
Ph.D. University of Pennsylvania
The prominent Wharton professor and author of the classic “Stocks for the Long Run” discusses his view on
Asia’s economy and its future.
BA: Business Asia
JS: Jeremy Siegel
BA: In your article “Consequences
of Asia Rising,” you mentioned that
the U.S. economy was losing its im-
portance and you could see a lot of
potential in Asian economy.Do you
think that is still the case given the
recent financial slowdown?
JS: Yes, definitely. We don’t have
all the data yet. But I believe that
Asia may, in fact, weather this eco-
nomic storm better than Europe
or the Americas. First of all, we do
see that their stock markets are do-
ing better. They have an advantage
of being high savings countries. So
they don’t have the leverage prob-
lem, and they can divert some of
their savings and use them to stimu-
late demand.
BA: The financial crisis wiped out
$50 trillion last year in Asia accord-
ing to Asian Development Bank.
How much is the U.S. liable for the
recession in Asia?
32••BUSINESS
32 BUSINESSASIA Spring2009
ASIA••Spring 2009
JS: I think that growth projection
was too high everywhere, not just in
the United States. There was exces-
sive pricing in real estate and overly
optimistic expectations in commer-
cial development and tourism. Over
optimism was not just in the United
States. We passed through a re-
markable period of world growth,
and expectations just got too high.
The U.S. was one of those countries
that over-speculated in the real es-
tate market.
BA: Are Asian countries better
equipped for recovery than their
Western counterparts from this fi-
nancial crisis? Will the centralized
governments actually help since
they can react more quickly?
JS: Clearly, many Asian countries
don’t have to go through a lengthy
democratic process to get the
spending started the way we do.
That is good, but then they don’t get
the deliberation on what the right
measures are to be taken. There are
gains to both systems. I don’t think
that we have to think now in terms
by Kellen Xu, University of Pennsylvania
INTERVIEWEE’S BIOGRAPHY
Professor Jeremy Siegel is the Russell E.Palmer
Professor of Finance at the Wharton School of the
University of Pennsylvania, the best undergraduate
business program in the U.S. Siegel has written and
lectured extensively about the economy and financial
markets. He is a frequent guest on CNN, CNBC, NPR
and a regular columnist for Yahoo! Finance and
the Wall Street Journal, among many other major
publications and networks.
Siegel has also served for 15 years as head of
economics training at JP Morgan and is currently the
academic director of the U.S. Securities Industry In-
stitute. Siegel is the author of numerous publications.
His book “Stocks for the Long Run” was named by the
Washington Post as one of the ten-best investment
books of all time. Siegel has received many awards
for his research and excellence in teaching. In the
past, he has been ranked as the best business school
professor worldwide by Business Week and Forbes.
of emergency measures because the
risk of a break-down in our finan-
cial systems is well past, very differ-
ent from September and October
of last year.
BA: Do citizens in Asia need to
spend their savings to get out of the
recession?
JS: The consumers’ problem in the
western countries is that they are
cutting back. As a result, Chinese
exports are falling. The only way
to make up the difference is for the
Chinese government to help the
Chinese consumers to offset that
drop.
BA: Do you think the global power
structure will change after the re-
cession? Does China or India seem
more promising?
JS: I think it depends on how the
recovery evolves. Whichever coun-
try recovers first will have the ad-
vantage. I actually think Asia will be
the first to recover. The long-term
trends are better for Asia. The U.S.
has taken a blow because of the
poor performance of its aggressive
style of capitalism. That will dimin-
ish the view of the U.S. However, if
we recover quickly, the rest of the
world will see that we have a resil-
ience that would maintain our po-
sition the world’s economic leader.
There is no question in my mind
that China and India will eventu-
ally have bigger economies than the
United States. But the question is
how many years? Maybe 15, 20, or
30 years. But just in terms of popu-
lation, they will be big and together
will be a very powerful economic
force.
BA: Can you elaborate more on this
global financial crisis?
JS: It’s my belief that the United
States, Europe, and Japan will have
to rely on capital from the develop-
ing world, China, India, and other
countries in the coming decades.
The aging population in the devel-
oped countries will be looking to sell
its bonds. The fast growing countries
will be saving and will be looking to
buy the stocks and bonds. There will
be a massive shift in capital from
developed countries to developing
countries. If developing countries
do not buy our capital, it will be a
much bleaker future for the retirees
in the developed countries.
BA: Do you think investors in Asia
will be less likely to invest abroad
now? Where do you think people
should put their money?
JS: Stocks are down to favorable lev-
els in most countries in the world.
All countries have been affected by
the world bear market. Some of
them will be profitable in the future.
I see opportunities everywhere.
BA: During March, China urged new
monetary reserve to replace the dol-
lar, the current global reserve cur-
rency. Mr Zhou, governor of the
People’s Bank of China, said a new
currency reserve system controlled
by the International Monetary Fund
could be more stable and economi-
cally viable. What political and eco-
nomic ramifications would occur if
it did take place?
JS: We have already seen a slow ero-
sion of the dollar as the internation-
al reserve, which is being replaced by
the euro and yen. I expect that trend
to continue. However, I don’t be-
lieve there will be a world currency
that will replace currencies in use by
the major economies in the world.
We have actually tried special draw-
ing rights many years ago, and they
BUSINESS ASIA••Spring
weren’t very popular. People want
money where they can buy some-
thing.
BA: On a more personal level, what
has your career path been like?
What words of wisdom do you
want to give to the distressed stu-
dents looking for jobs?
JS: I also wanted to be a teacher,
and I always loved economics. Al-
though when I was very young, I
thought I would be a math teacher.
I started studying economics much
later. Don’t be discouraged by the
current downturn. It’s tough to get
a job, but when you get one, you’ll
get in at the bottom. Then, things
will be moving up, and you will be
able to move up with those firms.
BA: You mentioned that Milton
Friedman was your role model, in
what ways did he inspire you?
JS: He was a great teacher, and he
showed me the importance of the
free market and how private initia-
tives and governments, though well
meaning, can mess things up badly.
BA: Do you think Finance will still
be Wharton’s No.1 concentration in
terms of popularity after this finan-
cial turmoil?
JS: Oh, yes, I’ve been through two
cycles like this before. There will be
a dip in the short run, but the econ-
omy and finance will come back.
There is still a tremendous need for
financial services. BA
Kellen Xu is a sophomore at the Wharton
School of Business at the University of Pennsyl-
vania, double majoring in Business and Psychol-
ogy with special concentrations in Finance
and Legal Studies.
BUSINESSASIA Spring2009
2009••33
33
 Interviews

INTERVIEW WITH HYUNDAI OIL

BANK’S CEO Seo Young-Tae
With the exchange rate reaching its peak in decades and
US-dependent domestic markets dwindling, South Korea’s
economy is in crisis. According to Standard and Poor’s,
a global credit rating agency, South Korea’s GDP for this
year has shifted from 0% to -3.5%. Korea’s GDP recovered
in five quarters after the International Monetary Fund (IMF)
crisis in 1998. Experts are predicting that this time Korea’s
economy will recover after the first quarter of the year
2011.
This is not the first time for South Korea to weather an
economic disaster of such scale. In the wake of 1998’s
economic crisis, many heroes emerged to build a new
landscape. In the midst of revitalizations was the CEO of
‘Hyundai Oil Bank’, Seo Young Tae, who revived the com-
pany through extensive market research and continuous
effort of restoring faith within the company. Though the cri-
sis is more severe this time, Seo Young-Tae, remains opti-
mistic.

BA: Business Asia || SYT: Mr. Seo Young-Tae By Seo Hyun Kim, Cornell University
BA: Hyundai Oil Bank has moved from deficit crisis to surplus. What do you think are the most important driving
forces behind your company’s success?
SYT: Here are some of the primary factors for success. We have changed our marketing policy from ‘market share-driven’
to ‘profitability-driven.’ That way, we can thoroughly focus on improving the bank’s profitability. We have also updated
the management system. For example, eight years ago, the system gave the team managers absolute authority. Since then,
we have reformed the system, and now employees can report directly to the Chief Executive Officer. Equally important,
we have changed the employee reward system. In the past, we calculated employee compensation based on their years of
work experience and status. That way, employees had little incentive to optimize their efficiency. Under the new system,
employees are rewarded based on their performance. We have also adopted ‘Action Learning’ (AL) techniques to motivate
the employees to voluntarily participate in innovations both in and outside of the company. For the last seven years, we
have researched and obtained 3,000 AL assignments, solved them and pocked more than 200 billion Korean Won. Lastly,
we have reformed our hierarchical culture. We are constantly moving towards a merit-based promotion system. This has
resulted in dramatic changes to Hyundai Oil Bank’s organizational culture.

BA: What is your company’s goal for the year 2009? How will your com-
pany overcome the global financial crisis? BA:Graduating seniors this year are
SYT: This year, our goal is to maximize cash flow and minimize risks. We hope having a hard time finding a job.
to have secure and sustained operation. Our company is now investing 3 trillion Any tips for them?
Won in facilities, and would like to maximize our spending power in order to SYT: No matter what happens, compa-
continue this project. In the short run, we are trying to minimize the total ex- nies can always recognize talents.That
ecutive cost to deal with the current financial crisis. Also, to make the company is the universal truth.Especially in times
more competitive for the future, our company is focusing on internal manage- of crisis, students should hone their
ment reforms and investment. fundamental skills to make them more
marketable. Stripping it to the bare
BA: What kind of actions do you think the Korean companies should take bones, effective communication skill
to deal with this financial crisis? and quantitative skills would always be
SYT: In an export-driven economy, a company’s best strategy should focus on desirable. Everything else is built upon
its survival. In order to do this, it should minimize unnecessary expenditures, these two. All crises have been over-
foster strong leadership skills, and focus on the company’s production capacity. come one way or another. Therefore,
In a time like this, we need to step back and look at the big picture. We need students should plan for their future
to focus on the company’s long-term competitiveness. Also, it’s important not beyond the immediate crisis by differ-
to be petrified. The companies still need to formulate and execute new busi- entiating themselves and preparing for
ness plans. Companies that are largely U.S. dependent are likely to be the most their long-term career goals. BA
vulnerable. Therefore, in the future, we need to expand our consumer base to
other markets, such as Asia, South America, and the Middle East.

34 • BUSINESS ASIA • Spring 2009

 Careers

Greetings from Hong Kong!

I’m originally from Boston and have been living in various
Asian countries for 20+ years. My current role takes me to 16 Asian
countries. I have a great job that allows me to experience fascinat-
ing cultures & a glimpse of how various countries are positioning
themselves politically and economically for future success.
So what can I tell you about Asia Business? I’m assuming that
a lot of you are thinking about ways to get ahead in Asia, especially
given the current economic uncertainties.
Rest assured, there are great prospects in Asia for hard-work-
ing, intelligent people. Asia is still the fastest growing region in the
world and with growth comes opportunity. College will sharpen
your thinking skills and give you a methodology for solving prob-
lems that not everyone out there will have. The multidimensional Postcard from the Edge
environment at college will also give you insights into what your
future partners and customers are like in today’s global economy.
By Duncan Scott,
These are the things that you can and will benefit from. Vice President of V.F.
My experience in Asia has taught me that the overriding fac-
tors for success in business are not cultural in the regional or ethnic Corporation
sense, but cultural in the sense of being your best. A dedication
to ethics— including but not limited to objectivity and openness, Things to keep in mind while
a hunger for knowledge, and a drive to find ways to add value on working working in Asia!
a very personal level—leads to unlimited capacity to achieve your
goals.
Some stereotypes about Asia still hold true to a certain degree.
At the risk of over-generalizing: linear thinking and discipline are
more prevalent here than in the West. While that often results in
high service levels and efficient by-the-book execution, it also con-
tributes to bureaucracy and at times can greatly inhibit progress.
Corruption, the gap between laws and effective enforcement, is also
a drag on success and a source of frustration.
Emerging nationalism in some Asian countries can lead to
pride which in turn leads to blind spots, just as it does elsewhere in
the world. Finally, there is generally more entrepreneurial thinking
in Asia than in the West and that is a definite strength that can be
tapped into.
Ultimately, success in the business world in Asia requires stay-
ing focused on the Big Three. First, Quality of the service or prod-
uct you are providing: achieving standards and ensuring that these
are aligned with what your customers really want. Second, Delivery
with Speed and Accuracy. Third, Controlling Cost in terms of time
and money that it takes to achieve items 1 & 2. Achieving optimum
balance of these Big Three will open many doors for you in Asia.
BA

BUSINESS ASIA • Spring 2009 • 35

 Careers
Working in
the Middle
Kingdom
By David Hao,
University of Toronto, Canada
Take a look at a summer intern’s experience with
an American publisher in China
THE ARRIVAL
Joy flooded my heart when I learned that I was going
to work in China this past summer. Though born and
partially raised in the Middle Kingdom, I was, shamefully
to admit, quite ignorant of the recent
economic and cultural development as I
have spent a good chunk of my life
living in Canada. Therefore, I saw
this summer internship as an alleys, the towering
excellent opportunity to fully
reconnect with my mother
skyscrapers,
crowd...Walking down
land and explore China from
a foreigner’s point of view. the memory lane, I was
As soon as I landed and nostalgic of childhood
settled down, I plunged right
into action. The little alleys,
the towering skyscrapers, the
bustling crowd...walking down the
memory lane, I was nostalgic of childhood
experiences. China is a mystery whose essence
cannot be captured by words alone; a unique culture
pervades the most mundane of everyday’s life-the blue
license plates attached to the rear ends of cars, the red
cornices of Chinese temples and a myriad of tiny things
that would make your tingle with awe and excitement.
David Hao is a sophomore at the University of Toronto in Canada.
36 • BUSINESS ASIA • Spring 2009
THE WORK
I was fortunate enough to have been hired by The
McGraw-Hill Companies for their Summer Intern
program in Beijing, the capital of China. I primarily
worked in their corporate unit. Contrary to popular
belief, I was not assigned to the grunt work: fetching
coffee, filing and photocopying; instead, I was given a
month-long research project that aimed to evaluate the
viability of entry into the market of vocational education
and training in China. I was also working on a variety
of other jobs on the side, mostly translations of official
documents. Priding myself on having a good grasp of
Chinese, I quickly learned that translating was not as
easy as it looked. Though a native Chinese speaker, I
frequently encountered professional terms that were
hard to translate. Soon enough, Google Language Tools
became my best friend at work.
While working there, I was lucky to have access to free
Business Week magazines and the research materials
conducted by Standard & Poor’s, two subsidiaries under
McGraw-Hill. Yet surprising enough, very few
people in China have ever heard that
McGraw-Hill is actually a Fortune
The little 500 Company. Popular reaction
was either a complete blank look
on their face or “Ohhh that
the bustling publishing company?” after a
moment of awkward pause.
Along the same line, many
people did not know about
Standard & Poors or even
Business Week. Of course, as
experiences. a temporary employee there, I
was a bit ticked off by the lack of
due recognition.
Ultimately, I loved the job. Perhaps the only
downside was the meager pay I received: 70 RMB per day
(about 10 dollars) - an amount only enough for treating
friends to a round of beer. But, I feel the experience
of working in a Fortune 500 corporation in Asia would
outweigh the “labor exploitation.” With Asia evolving
fast into an economic powerhouse, I would highly
recommend anyone who is interested in working there
to hunt for an summer internship in Asia. BA
 Careers
es
jo b o p portuniti we
g ,
y excitin to China
p r e s e nts man ic career move CPA and
, China strateg etang Wang,
rket size ing making a

A
e m a or Yu
n s r Profess

N
imme nside

I
d a n a r e co g w it h

H
n
rowth a tes who r meetin

C
h GDP g es. For gradua reer fields afte

N
h h ig

S I reign
W it uat g ca
ge grad romisin
for colle iled a list of p jing University
.
u a tes
E R r a d
p
g
n

E
m a
have co Jinping Yu of N

T CA R for fo
or
Profess

HO andria S
by Alex niversity
U
u n & R ay Won
g ,
Venture Capital
Cornell
Entrepreneurship VC is as much as a new trade in China
as it is a niche industry. Few would

Accounting With an ever-growing middle class

According to Professor Wang, “ac-
counting is evolving into a new playing
field as the Chinese government allows
for the adaptation of the International
Accounting Standard (IAS).”As a re-
sult, the Big Four accounting firms are
taking advantage of the new policy to
grow their businesses. Also, China pres-
ents a wealth of investment opportuni-
ties for foreign investors. Whether you
are in for merger and acquisition or just
opening a store branch in Shanghai,
you probably need good bookkeep-
ing to make it happen. The game goes
both ways as many Chinese companies
are establishing their presence overseas.
The once regionally confined career is
in desperate need of global-minded,
foreign-educated CPAs.
demanding more material comfort and
technologically advanced products,
China appears to be a treasure trove for
entrepreneurs. “Developed countries
like the U.S. have a consumer market
that is relatively saturated. China, on
the other hand, has a huge pent-up
demand for consumer products which
is still waiting to be tapped by risk-
loving entrepreneurs.” says Professor
Yu. One popular trend is the increasing
demand for outsourcing in China, a
country of relatively cheap yet educated
labor force. Since almost every college
grad speaks English, why not start an
outsourcing company that specializes in
hotel reservation service for American
hotel chains? The list of opportunities
goes on. Of course, any innovative,
neat gadget that caters to the middle-
class consumer taste would also be a
break into the field, but don’t lose
hope yet. VC funds are increasing in
number in an economic climate of
excess liquidity and hot investment
money. Some of the world’s biggest
VC firms such as Sequoia have already
established a branch in Shanghai, the
hub for major VC activities. As more
local VC firms sprout to life, we will
see an increasing demand for experi-
enced professionals in business, law
and cutting-edge technology. VC firms
usually only recruit professionals who
come with extensive, highly special-
ized work experience and a wealth of
professional contacts.
Bottom line:
If you are a new college grad but think-
ing about establishing a particular career
in China, gain a few years of experience
here first in a renowned, international
company and learn Chinese. If you are

Management hot shot. A caveat though, according to

Many of the top management are
foreign-educated and have at least a few
years of overseas experience under their
belt. China might have cheap labor, but
when it comes to cutting-edge manage-
ment, it is in a rather short supply. As
China becomes more globalized, the de-
mand for experienced managers would
increase. An experienced manager can
gather a comfortable seven-figure salary
(in RMB, Chinese currency) in a major
international corporation.
Professor Yu, is that any “entrepreneur
wanting to be successful in China needs
to have a comprehensive understanding
of its unique culture.” His advice: be-
fore striking out on your own, first seek
guidance from the locals and take time
to understand the rules of the game.
an experienced professional, then try to
network with as many professionals as
possible, preferably those who have had
work experience in China. Social net-
working plays an even more important
role in the Asian business world. After
that, seek out job opportunities that
might interest you and for which you
can apply your current skill set. BA

BUSINESS ASIA • Spring 2009 • 37

 WE WOULD LIKE TO THANK THE FOLLOWING
SPONSORS FOR THEIR GENEROUS SUPPORT:
CORNELL UNIVERSITY SPONSORS

EAST ASIA PROGRAM

SOUTH ASIA PROGRAM
SOUTHEAST ASIA PROGRAM
HOLLAND INTERNATIONAL LIVING CENTER
STUDENT ASSEMBLY FINANCE COMISSION

INTERESTED IN ADVERTISING WITH US?

CONTACT BUSINESS.CABM@GMAIL.COM

Business Asia

article ideas?
no matter where you are, you can help us out!
email cornell.asia.business.forum@gmail.com
subject “Recruiting” today!

CORNELL STUDENTS, we are also actively recruiting for the following positions:
LAYOUT ASSISTANT || WEBMASTER || BUSINESS STAFF
email cornell.asia.business.forum@gmail.com, subject “Cornell Recruiting” today!

>> NEXT ISSUE COMING OUT IN FALL 2009

GET A CHANCE TO WIN

50% OFF ANY KAPLAN COURSE

OF YOUR CHOICE*
or up to $100 worth of coupon to Miyake Japanese Cuisine!

STEP 1: GRAB A COPY OF Business Asia AT ANY OF

THE FOLLOWING LOCATIONS:
CORNELL OTHERS:
- DUFFIELD HALL - TRILLIUM - UNIVERSITY OF PENNSYLVANIA
- SAGE HALL - STATLER - NEW YORK UNIVERSITY
- LIBE CAFE - RPCC - BOSTON UNIVERSITY
- MANN LIBRARY - WILLARD STRIAGHT - UNIVERSITY OF CALIFORNIA, LOS ANGELES

STEP 2: AFTER READING, GO TO

businessasia.weebly.com
AND COMPLETE THE SURVEY BY
SUNDAY, MAY 3RD, 2009
YOU WILL BE AUTOMATICALLY ENTERED INTO A LOTTERY- TWO KAPLAN
COURSES & 3 COUPONS TO MIYAKE JAPANESE CUISINE AVAILABLE!

STEP 3: ALL WINNERS WILL BE NOTIFIED BY

SUNDAY, MAY 10TH, 2009!

* ONLY APPLICABLE TO COURSES REGISTERED AT THE ITHACA KAPLAN CENTER.

Business Asia